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Sincehitting
a new record highabove
$1,900 per ounce on Monday,
the gold price has lostground. But Moody's Investors
Service unexpectedlydowngradedJapan'scredit rating to
Aa3 from Aa2 at the start of Asiantrading – supporting a furtherrise of spot gold by
more than 1% to about $1,850 per troyounce. Manyinvestors are realisingthat the recent US debtdowngrade by rating agency Standard & Poor'sismerely the forerunner to more downgrades
of other countries. A growingnumber of governmentswillbefindingit hard to issue debt. Many countries will face higherinterestcosts on theirdebts, whileinvestor confidence continues to fall.

The downgrade of Japan'scredit rating by
Moody's Investors Service hit the financialmarketslike a bombshell. Japan'scurrenteconomicproblems are growingexponentially. WhileJapanwasrattled by a catastrophicearthquake and tsunami back in March, whichnegativelyimpacted the country'seconomicactivities, the yen'sexternal value continues
to riseagainstother major currencies – regardless of several
interventions taken by Japan's
central bank to stop the country'scurrencyfromappreciatingfurther. The fast-pacedrally in the yen is putting Japan's export economyundergreat pressure. LeadingJapaneseenterpriseswarned the government of an exodus to neighbouring
countries earlierthisyear if the yen'sappreciationwas not stopped. Moreover, Japanissufferingfrom public debtsamounting to approximately 226%
of the country'sgrossdomesticproduct – far toohigh a figure consideringthatJapanis a rapidlyaging society.

The downgrade of Japan'scredit rating isexpected to makemanymarket participants realisethattherewill not be an easy solution to the
global debtcrisis. Politicians are unable to calmmarket turbulences by making promises anymore, sinceinvestorswant to seedrastic
actions by the mostaffected
countries– includingJapan,
the US and eurozone nations. With
confidence in policymakers
in free fall, itmight not come as a surprise thatpreciousmetalssuch as gold, platinum and silver are beingsought as a safehaven by an increasingnumber of investors.

Politicians in Germany are alsostarting to recognise the
value of gold. Ursula von der Leyen,
labour minister in Chancellor Angela Merkel's cabinet, suggestedyesterdaythathighly-indebtedeurozonemember states such as Greeceshouldprovidecollateral in the
form of gold or other
tangible assets for freshloancommitments to
emergency lenderslike
Germany in the future. Von der Leyenaddedthatfinanciallydistressedeurozone
countries shouldoffertheir gold reserves or industrial holdings as collateral
to Germany and other emergency lenders.
The German labour minister'sstatementswerefeverishlydebatedyesterday, but were not wellreceivedamongMerkel's cabinet. Merkelsaidthatshewasastonished by these public comments, whichsheviews as “unhelpful”.